CISA meeting focuses on liability issues.

CISA Meeting Focuses on Liability Issues

The cost of liability insurance and litigation to U.S. business and industry may only get worse as environmental, health and safety matters put a whole new face on the question of liability. But some say that the fear of liability is having an even more profound effect on manufacturing in this country.

Addressing the 1989 annual meeting of the Casting Industry Suppliers Assn on July 13-15 in Lincolnshire, IL, R. J. Simonds of the Chicago merger and acquisition firm of Rollins, Burdick and Hunter told the group that one of the consequences of product liability not often recognized is that of "reduced innovation." Simonds contends that there is plenty of new technology and innovation today, but the high cost of liability has made people afraid to use it.

The U.S. Congress passed the Risk Retention Act in 1981 in response to the "product liability crisis," where in many cases liability coverage was not available at any price. "With this Act," Simonds said, "Congress sent a message to the insurance industry that irresponsibly high premiums would not be tolerated."

The law allows groups to join together to take advantage of scale economies in securing coverage from a commercial insurer or Risk Retention Group for its members. "It is necessary to have a group of homogenous risks who are able and willing to make long-term commitment to the group," said Simonds.

The law was expanded in 1986 to allow for virtually any commercial liability coverage except worker's compensation and employer's liability to be written by a Risk Retention Group. This allows for difficult coverages, such as pollution liability and professional liability. If it chooses, a Risk Retention Group also can insure less volatile exposures--such as automobile liability--to offset the higher risk coverages.

Attorney Frank Hall offered three suggestions to the CISA group for meeting the problem of product liability. First, he said, "Help reform the tort system by supporting organized efforts" to standardize liability laws. Second, "Keep the standard of safety of your product high." And finally, "Develop an in-house paralegal expert and support his efforts." Hall termed the last item "a do-it-yourself legal program."

Because of the wide variances in liability laws from state to state, "a national reform act would be preferable," Hall said. "But with each of the states working on separate pieces and provisions, those reforms that are refined from state to state and are held constitutional by their supreme courts become increasingly eligible for adoption into a national reform law."

On product quality, he suggested that CISA members take a hard look at what they are producing. "If it has been a long time since you last reviewed the possible hazards associated with your product, it would be in order to conduct a thorough review," Hall said. "A quick way to do this is to get an expert to come in to make a complete audit, leaving you with a laundry list of things to correct. The problem is you probably cannot get around to correcting everything at once."

Hall warned, "If an accident happens because of something you have not yet corrected, you are probably worse off than if you did not have the audit because now the plaintiff's attorney shows by your own documents that you were notified of this but did nothing."

Silica Liability

An area of specific concern to foundries and their suppliers, silica liability, was addressed by Gary Mosher, director of environmental affairs for the American Foundrymen's Society.

IARC, an international cancer research group, has suggested that silica, which is widely used in a variety of industries including foundries, may cause cancer, Mosher explained. IARC's contention is based largely on a review of literature. No research has been conducted by the group itself.

In addition to the legal and economic difficulties that such a ruling would create, Mosher said such an action would create a dangerous precedent if accepted by government agencies. The precedent would be dangerous because it would be based solely on the recommendation of an outside party without the ruling agency, in this case OSHA, conducting research to verify the recommendation.

The liabilities associated with silica exposure would go beyond worker's compensation claims and probably would include additional monetary awards, according to Mosher. In all likelihood, such lawsuits would involve not only the foundry, but suppliers of silica and products containing this substance.

IARC's recommendation that silica be classified as a carcinogen is being reviewed by eminent scientists, Mosher said. When the review is published, a concerted effort will be made to remove silica form the list of carcinogens.

The circumstances that can lead to product liability litigation may be created long before a product is actually used, said Charles Saunders, Ashland Chemical Co. "A statement of fact or promise made by the seller to the buyer in the course of negotiations which relates to the goods and is part of the basis of the bargain creates an express warranty," he said.

Saunders explained that the "Seller does not have to intend to create an express warranty. If the words or conduct used amount to a warranty, it is immaterial that the seller did not intend them as such or did not intend to be bound."

"Liability is predicated on breach of contract, not fraud or negligence. Where the warranty is breached, the seller becomes absolutely liable. The fact that the warranty was given in good faith or that the seller was innocent or non-negligent in causing the breach is immaterial."

Saunders added that "Sellers must take care in representing products. The law views the seller as the expert in regard to his product. Express warranties are often created accidentally. Express warranties are easy to prove and hard to disclaim. This spells liability for an over-talkative or careless sales representative."

PHOTO : Attorney Frank Hall told those attending the annual CISA meeting that the best way to

PHOTO : avoid product liability problems is to "Keep the standard of safety of your products

PHOTO : high."